Your retirement money and market volatility

Market volatility is a fact of life. Stock prices fluctuate from day to day, and markets move up and down over time along with the economy and business cycle. As a student of Jeremy Siegel of the School of Wharton, University of Pennsylvania, over time the market will return 8 to 9 percent over the cost of living.

That's why the Standard & Poor's 500 has returned 10.4 percent for any 10-year period since 1926. Those saving for long-term goals can usually overlook temporary volatility in the interest of long-term gain.

But for retirees, who increasingly rely on their investments to fund their living costs, market volatility can mean the difference between living comfortably and just scraping by. Retirees are particularly vulnerable to market downturns, especially in the early years of retirement because of their dependence on portfolio income, their limited investment horizon, and their need to make sure their saving last throughout their retirement.

There have been many other periods of decline throughout history, although the particular events that triggered them may have been different (now we have the problem with energy as Congress failed to deal with the oil embargo problem created in 1973, compounded by the current financial fiasco).

There is no doubt there will be more periods of market decline in the future. As stated, market fluctuations are a normal part of investing, but they can still pose challenges to investors, especially those entering or already in retirement. History shows that the probability of experiencing a bear market (defined as a 20 percent drop in stock values) in any of the first five years of retirement is 44 percent.

The following strategies can't guarantee against losses, but they may be able to ease the ups and downs in the market and contribute to greater peace of mind:

* Keep withdrawals conservative. Withdrawal experts suggest withdrawing no more than 5 percent of a portfolio value each year. It will help maintain a cushion against future declines, while supporting a hypothetical payout schedule of 20 or more years.

* Maintain a sensible asset allocation. Divide your portfolio among stocks, bonds and cash investments so you have adequate exposure to the long-term growth potential that stocks provide, but also some protection against market setbacks.

* Review and rebalance portfolio. Once you have set an asset allocation that works for you, review and, if necessary, adjust it from time to time to ensure that it still reflects your needs. Many asset allocation funds are available that help maintain this criteria.

* Work with a financial professional. The guidance of a financial adviser can always be beneficial, but it may be especially so in the years leading up to and entering retirement. It is at this time that investors are at their most vulnerable to specific market events as well as normal market fluctuations. In either case, an advisor can help you make informed, unemotional decisions consistent with your financial goals.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investment. His column represents his own views and not necessarily those of The Signal.